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Broadband tax of £6 per year to fund rural fibre rollout

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Digital Britain The government plans to impose a 50 pence monthly levy on every phone and broadband line to fund the rollout of fibre to rural areas, it was announced today.

The measure, which will mean city dwellers subsidise faster broadband in sparsely populated areas where the economic case for commercial investment is weak, will come in next year. It is likely to be seen as one of the most controversial proposals of Lord Carter's final Digital Britain report, published this afternoon.

The levy will be collected by all phone and broadband providers and paid into a Next Generation Fund, run by Ofcom. The government estimates providers will pay between £150m and £175m in total every year.

A Network Design and Procurement Group, whose membership wasn't revealed, will consider applications for subsidy from networking companies wanting to install fibre in a rural areas.

"The benefits we believe will be enormous," Carter said. "Across the country, rather than just in the cities."

The government plans to impose the levy because BT and other network infrastructure providers indicated the market for next generation services in rural areas - between 30 and 40 per cent of the country - will not be large enough to justify the cost. Carter plans to use the Next Generation Fund to connect the "Final Third" by 2017.

BT has committed to roll out fibre to street side cabinets covering about 40 per cent of its national network by 2012. The £1.5bn investment, which will offer downstream speeds of up to 40Mbit/s, is aimed mostly at dense urban and suburban populations. The new technology will be available to competitors on a wholesale basis.

Separately, it is deploying fibre into premises, offering 100Mbit/s downstream, on new build sites where the civil engineering costs are low.

Virgin Media's network meanwhile covers about 50 per cent of the country, again in urban and suburban areas. It has almost completed an upgrade to 50Mbit/s downstream and is in early testing of a 200Mbit/s service.

Carter said subsidising deployments to the "Final Third" was essential to avoid a digital divide on access to faster broadband. Asked if he believed it would be a popular measure, he said: "We'll have to wait and see."

The former Ofcom boss said strong competition in the ADSL market had driven broadband prices down and that he expected the impact of the levy to be "competed away".

Carter also confirmed the previously announced 2Mbit/s universal broadband service obligation. It will be funded by a combination of the public purse and underspend diverted from the TV digital switchover. Private investment in better mobile coverage is also expected to contribute. The Network Design and Procurement Group will also be responsible for ensuring delivery of universal broadband. ®